agricultural economics economic subject matter meetings

Agricultural Economics

October 2002October 2002

Economic Subject Matter Meetings


Departmental Update Fall 2002

• Consolidation of KFBM • Search for KFBM Program Coordinator • Faculty Positions Frozen

*Livestock Forages *Intertemporal Decision Making and Firm-Level Finance

• Infanger back from 27 months in Armenia

• Trimble left October 2 for Australian sabbatical


Trimble’s One Year Sabbatical

• The majority of his time will be spent studying the Australia’s beef and meat goat industries.

• Involved in their “Sustainable Grazing Systems” project.

• Looking at how the project has made producers more profitable.

• Value to Kentucky producers.


Land Value Survey

Land Values and Rental RatesSurvey of Participants in Economic Subject Matter Meetings

October 2002Would you please answer the following questions for your county? Results of this

survey will beused to supplement information collected and reported by the USDA, NASS.

Thank you!

1. What is the current average price of Agricultural Land and Buildings per acre? $______/Acre

2. How do you expect this price to change during the next year? + or - ________%

/////////////////////////////////////////////////////(Please circle increase or decrease)

12. What is the most common crop share rental arrangement

County Reporting __________________________


• Recession Ends-Led by Consumer Spending

• Inflation Moderate • $6 Trillion Wealth lost in Stock market• Business Confidence Weak• Some Interest Rates Fall to 40 Year Lows• Trade Deficit Large• 9/11/01 and “War on Terrorism”

Macro Economic Review of 2002


-4

-2

0

2

4

6

8

1970 1975 1980 1985 1990 1995 2000

Source: Bureau Economic Analysis

Real Gross Domestic Product1970-2002


0

1

2

3

4

5

6

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

Percent

Source: Bureau Labor Statistics

Consumer Price Index1985-2002


0

2

4

6

8

10

12

14

16

3 Month Treasury

30 Year Bond

Percent

Source: Federal Reserve

Long Term vs Short TermInterest Rates—U.S. 1977-2002


0

2

4

6

8

10

12Percent

YearSource: Bureau of Labor Statistics

U.S. Unemployment RateAnnual, 1970-2002


-400

-350

-300

-250

-200

-150

-100

-50

0

50

1975 1980 1985 1990 1995 2000

Billions $

Source: Bureau Economic Analysis

U.S. Goods and Services Trade Balance, 1975-2002


-300

-200

-100

0

100

200

300

1970 1975 1980 1985 1990 1995 2000

Billions $

Source: Congressional Budget Office

U.S. Budget Deficit/Surplus1970-2002 FY


• GDP 3.5%

• Inflation 1.7%

• Unemployment 5.8%

• Interest Rates Down

• GDP 2.75%

• Inflation 2.2%

• Unemployment 5.6%

• Interest Rates Upside Risk

U.S. Macro Economic Outlook 2002

Compared to 2003


0

20

40

60

80

100

120

1995 1996 1997 1998 1999 2000 2001 2002 F

Billion $

Crop Livestock Govt Payments Other

U.S. Agriculture Gross Cash Income


U.S. Net Farm Income


0500,000

1,000,0001,500,0002,000,0002,500,0003,000,0003,500,0004,000,0004,500,0005,000,000

$ 1

,00

0

Gross Revenue (w/o GP) Expenses Govt Pmts NI

Kentucky Revenue and Expenses


0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

1,800,000

2,000,000

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

$ T

ho

us

an

d

Kentucky Net Farm Income


-5,000

0

5,000

10,000

15,000

20,000

25,000

1996 1997 1998 1999 2000 2001 2002

$ Million

Other

Emergency

CRP

LDP

Counter-cyclical

Direct

AMTA

Marketing LoanGain

U.S. Direct Government Payments


0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

500,000

1996 1997 1998 1999 2000 2001

Year

$ 1,

000

Other

Emergency

CRP

LDP

Counter-cyclical

Direct

AMTA

Marketing Loan Gain

Kentucky Direct Government Payments


0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

$ 1,

000

Feed and oilcropsTobacco

Meat animals

Dairy products

Poultry

Horses

Kentucky’s Cash Receipts


0

5

10

15

20

25

1997 1998 1999 2001 2002 F

$ B

illi

on

Fertilizer

Fuel

Pesticides

Labor

Interest

U.S. Farm Sector Production Expenses


0

50

100

150

200

250

1970 1974 1978 1982 1986 1990 1994 1998 2002 F

Year

$ B

illio

n

Non-realestate

Realestate

U.S. Farm Debt 1970 to 2002


0

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

30,000,000

1961

1964

1967

1970

1973

1976

1979

1982

1985

1988

1991

1994

1997

2000

Thousa

nd D

olla

rs

Debt

Equity

Total assets

Debt and Equity for Kentucky


0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

FY97 FY98 FY99 FY00 FY01 FY02 E FY03 F

Year

Bill

ion

$

Exports

Imports

Agricultural Trade Situation and Forecast


• ~ 12.4 to 12.7 Million acres in

Timber– 90% privately owned; New inventory

report will come out in 3-4 months

• $117 Million to woodland owners

Snapshot: Forest Industry


No. of KML graduates: ~5,000

Number of Logging Co.: 1,481

KML Loggers/Firm: 2.52

Website:www.masterlogger.org/

Snapshot: KY Master Loggers


• 4 Types of Insurance surveyed:– Worker’s Comp, Equipment, Trucking

and General Liability– Biggest change: Equipment insurance

cost jumped ~ 20-50%.– ~ 50% reducing deductibles or

coverage

• Some reported greatest increase was for Health Coverage.

Loggers in Insurance Squeeze


• 30,000 employees

– 1 out of 9 manufacturing jobs

– Annual payroll of $602 Million

• Value of Forest Products made in KY: $4.5 - 5.3 Billion

Snapshot:Forest Products Industry


• ~ 530 Primary Industries (ex., Sawmills)

• ~ 540 Secondary Industries (ex., Pallet & Cabinet makers)

• Including Logging co’s, ~ 2550 firms

Snapshot: Forest Industry


• Stumpage Prices

• Primary Industries

• Secondary Industries

• Non-Timber Forest Products

Forest Products Outlook


• Most Hardwood prices are about the same, no sustained changes expected.

• Prices are down slightly from last year:

– -2% for HW Sawtimber (~ $18.50/ton)

– -6% for HW Pulpwood (~ $5.00/ton)

Stumpage Prices


• Recent species trends in sawtimber: Cherry and Walnut up; Hard Maple & Ash down

• Cabinet design market is heading back towards darker woods

– 3-4 year cycle

Stumpage Trends


• Hickory is gradually moving up due to Red Oak cost (lots of hickory in KY).

– High silica, dulls knives – but potential substitute for flooring (ex. Teak in Cuba)

• Yellow-poplar still strong for moulding & millwork markets.

Stumpage Trends


• Soft maple has moved up ~ 1/3 the past 2 years (Hard maple substitute, price-sensitive).

Stumpage Trends


• Not a lot of information about Softwoods (ex., Pines) in Kentucky

– < 7% of the volume of standing timber in the state (not counting Eastern red cedar).

• Trends probably similar to more southerly states, pulpwood going lower.

– “Wall of Wood” as plantations mature, thinnings problem

Stumpage Trends


• Kentucky harvests ~ 15-25 Million board feet (or more) of Eastern red cedar each year.

• Production goes into shavings, boards and 3.5” x 3.5” posts that compete with treated southern pine for mailbox posts. (50% or more of production!)

Stumpage Trends


• Losing small & mid-size mills, but increasing the volume of wood sawn

Factors: 1.Consolidation of mills 2.Optimization of mills through

technology 3.More resaws to convert cants more

efficiently

Hardwood Sawmills


• ~ 1200 Portable sawmills in Kentucky

• Ave. mill longevity is 5 to 6 years

– 30-40% of mills sold leave the state

• ~ 80% of owners get out, 20% buy a bigger mill

• Hard to make a living sawing only 1,000 board feet/day!

Hardwood Sawmills


• Portable sawmills are good for specific markets or high value-added opportunities such as:

– Yellow-poplar siding

– Restoration siding for old buildings

– Gunstock blanks, spalted lumber, crotches

– Building patterns

Hardwood Sawmills


Hardwood Sawmills

• Likely opportunity for sawyers in Quarter-sawn lumber market, but most feel it’s “too much trouble” Quartersawn (A) and

Plainsawn (B) boards cut from a log

A B


• Boards & Staves:

– Consistent, good outlook

– Distillery business getting bigger

– CA is considering KY barrels

• Poles

– Pine peeler poles (SE KY) have a good market, but lost much pine to beetles

Other Primary HW Products


• RR Crossties

– Hot Market!

– Big demand.

– Prices up in last 6 months, but prices tend to run hot-and-cold, can’t predict



• Pallet Cants

– 4.5 Billion board feet of HW lumber was used in pallets in 1995 • (38% of total U.S. HW lumber production)

• 48% of all KY HW lumber goes into pallets!

– Very competitive market!



• Pallet Cants

– Demand is up, but the market price has stayed about the same!

– KY pallet lumber is extremely cheap.

• ~10% cheaper than neighboring states!

• Ex., $245/MBF in KY vs. $250/MBF in TN, $275/MBF in W. VA



• Good value-added opportunity

• Companies have continued to add dry kiln capacity, will likely continue to add more capacity.

Dry Kilns


• Millwork (Residential & Commercial)

• Flooring

• Cabinets

• Furniture

• Pallets

Secondary Hardwood Products


• Increasing production in last 5 years

• More/larger moulders have been added

• Yellow poplar supply is exceptional, best wood choice

• Outlook: V. good, remodeling strong

Millwork


• Growing market, will continue to grow

• Preferred over carpeting

• Species used (in order of demand):

– Red oak

– White oak– Hickory– Hard maple

Flooring


• Remodeling market, won’t slow down

• Very competitive, lots of small firms and a few big ones (15-20+ employees)

• Most do well with custom cabinets

• Cheaper lines coming from overseas using U.S. wood

Cabinets


• Entertainment Center market is predicted to increase.

• Custom Built-in market is also predicted to increase.– Upgrades of older homes– Maturing families mean different

demands– Transition to Flat-screen TVs

Cabinets


• Struggling!

• Chinese have taken a bite out of the business with cheaper labor.

• Higher-end companies have moved out of NC, TN, VA (with U.S. engineers!) to China.– Producing good quality furniture

overseas

Hardwood Furniture


• Still good opportunities for furniture that is expensive to ship.

– Ex., Entertainment Centers, BR furniture

• Designers can standardize components like panel size, simplify production, lower costs

– BUT – not much opportunity for most KY makers to take real advantage of this, too small

Hardwood Furniture


• KY is a real force in the pallet industry

• Increasing number of pallet mills & repair facilities (could be either good or bad …?)

• SE KY pallets are a ~little cheaper.

• Industry shakeout expected – but hasn’t occurred!

Pallets


• Trend towards more leased pallets, standardization of specifications in the past 5 years

• Large demand for custom products, but industry doesn’t market itself that way

• “Commodity” = Low Profits!

• Industry needs better marketing.

Pallets


• Excess capacity in KY, room to grow– Kentucky pallet plants are running at only

80% capacity.

– 75% of other states report that pallet mills run at 85-90% capacity.

• KY competitive advantage is due to low wood cost (esp. for customers in Chicago, etc.)

Pallets


• Ginseng, Goldenseal, Black/Blue Cohosh• Mushrooms• Native fruits (persimmon, pawpaw)• Nuts (black walnut, butternut, hazelnut)• Christmas trees• Fence posts• Fuelwood

Non-Timber Forest Products


• Ginseng:– 5 to 10 year growth needed– $300 or better per pound of dry root– Vandalism is biggest problem.

• Goldenseal, Cohoshes:– Lower value, but grow in shorter time– Goldenseal ~ $20-50/pound of dry root– Less than that for Cohoshes

Ginseng & Medicinals


• Shiitake mushrooms are cultivated– 3” to 8” diameter HW stems– ~$5/pound for fresh shiitake

wholesale

• Morels– Mostly harvested, difficult to manage– Value is ~ $30/pound fresh

Mushrooms


• Marketable crop in 5 to 7 years

• Mostly Scots pine or white pine is grown in Kentucky.

• Close to 14% ROI can be expected.

Christmas Trees


• Dr. Jeff Stringer, UK Dept. of Forestry• Dr. Deborah Hill, UK Dept. of Forestry• John Cotten, KY Dept. of Agriculture• Dr. Billy Watson, Georgia-Pacific• Larry Lowe, KY Division of Forestry• Gene Parker, Hardwood Market Report• Global Wood Trade Network• Timber Mart South• Jeff McBee, Pallet Profile Weekly• Pallet Enterprise• Forest Resources Association

Acknowledgements


Kentucky’s Tobacco Situation and OutlookWill Snell, UK Ag Economist


World Burley Production

World Burley Production Declined 17% from 1997-2001, But Increased 6% in 2002 and is Projected to Increase 5% in

2003


0

1

2

3

4

1997 1998 1999 2000 2001 2002

$/lb

U.S. Import

U.S. Burley Export Price vs Average U.S. Burley Import Prices


0

10

20

30

40

50

60

70

1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000

Percent

U.S. Market Share of World Burley Production and Exports

Production

Exports


U.S. Cigarette Production, Consumption and Exports

0

100

200

300

400

500

600

700

800

1970 1975 1980 1985 1990 1995 2000

Billions

Consumption Exports Production


U.S. Burley Import Market Share

0

5

10

15

20

25

30

35

40

45

50

1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000

Percent


U.S. Burley Demand

0

100

200

300

400

500

600

700

1980 1985 1990 1995 2000

Million Lbs

Current Demand For U.S. Burley May Be More in Current Demand For U.S. Burley May Be More in the Neighborhood of 350-400 Million Poundsthe Neighborhood of 350-400 Million Pounds


2002 Market Outlook

• 2002 Flue Market– Prices averaging 3.5 cents/lb less than 2001– Around 40% of auction sales going under loan– Over 80% Contracted– 7% of total marketings going under loan

• 2002 Burley Market– Quality/Quantity concerns– Similar price support/contract price– 73% contracted so far– Limited pool intake, slightly lower prices ???– What about undermarketings/carryover quota???


2003 Quota Outlook

• Sale of 50 million lbs of pool stocks will help formula– Currently around 70 mil lbs under loan– “Ideal” level is 50 mil lbs

• Leaf exports up around 20% so far in 2002, but 3 year average will not change much

• What about purchase intentions?


U.S. Burley Manufacturer Purchase Intentions

395

511

446

361324

385424

474421

291242 225 227

0

100

200

300

400

500

600

1990 1992 1994 1996 1998 2000 2002

Million Lbs

???


U.S. Burley Basic and Effective Quota

0

100

200

300

400

500

600

700

800

900

1000

1980 1983 1986 1989 1992 1995 1998 2001

Mil Lbs

Basic Effective


Average Kentucky Burley Quota Lease Prices


• 50% Drop In Quotas

• Record Lease Prices

• Pessimistic Outlook

• Aging Farm Population

• Structure– Price/lb– Base years

• Program– Modified or

Eliminated?

• Funding– Excise Taxes– User Fee

• FDA Regulation

Support forA Buyout

Buyout Issues Buyout Environment


McIntyre Quota Buyout Bill

Quota Owner ($8/lb on 1998 Quota) Grower ($4/lb on 2001 Marketings) Payments over 5 Years/User Fee Eliminate Program FDA Regulation


Fletcher Quota Buyout Bill Quota Owners ($8/lb on 1998 Quota) Growers ($4/lb on 1998 Quota) Individual Quota Owners – Split $ Based on Share of

2002 Basic Quota Individual Growers – Split $ Based on Share of

Average 2001-2002 Effective Quota and Marketings $2/lb Payment for Those Exiting Payments Over 5 Years/User Fee Modified Program

Licenses Safety net based on cost of production

No FDA Regulation


Helms Quota Buyout Bill Quota Owners ($8/lb on 1998 Quota) Growers ($4/lb on 2001 Effective Quota) Lump Sum or Payments Over 5 Years Using 1999-2001 Excise Tax

Funds New Program

Price supports called Investment Protection Price (IPP) Base production levels called Historical Quota Production (HQP) Counter Cyclical Payments when prices fall below IPP Direct Payments (35 cent/lb on HQP)s financed by

assessments/user fees Loss of Farm Program Benefits/Fines for Excess Production (Burley

only) and Production in Non-Traditional Counties Advisory Board Establishes Annual IPP and HQP lbs Eligible for IPP No FDA Regulation


Political Challenges Unity among tobacco farmers, companies and health groups Congressional challenges

Maintaining the $8/lb value of quota and justifying a “grower” payment

Anti-tobacco members who recall T-LAP funding and forgiveness on 1999 pool stocks

Spending on another farm program following the controversial farm bill

Tobacco farm benefits vs the benefits other farmers received from the farm bill

Other more pressing issues such as homeland security, war on terrorism, and budget deficit


Opportunities for a Buyout

Farm groups committed to a consensus Peanut quota buyout Support from health groups Support from PM Non-taxpayer funds used to finance most bills


Kentucky Tobacco Cash Receipts/Mailbox $

0

200

400

600

800

1000

1200

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002

Million Dollars

Receipts PHASE II T-LAP


0102030405060708090

1987 1989 1991 1993 1995 1997 1999 2001

Million Lbs

Snuff Chewing

U.S. Snuff and Chewing Tobacco Consumption


0

10

20

30

40

50

1990 1992 1994 1996 1998 2000 2002

Million Lbs

Demand Production

Dark Fire-Cured Production vs Use


0

2

4

6

8

10

12

14

16

1990 1992 1994 1996 1998 2000 2002

Million Lbs

Demand Production

Dark Air-Cured Production vs Use


Gregg Ibendahl

Farm Bill Considerations


Participate?

No

Yes

Update Acres?

Update Yield?

Yes

No

Yes

No

Decisions


Participate?

2002 PFC Acres + Oilseeds 98-01 Base

Acres

2002 PFC Yield

2002 PFC Yield

70% Update Base Yield for CC payment only

93.5% Update Base Yield for CC payment only

No

Yes

Alternative A

FSA Option 1, 2, 3, 5

These options vary depending upon how soybeans are added

Alternative B

FSA Option 4

Alternative C

FSA Option 4

Alternative D

FSA Option 4

Decisions


Direct

Direct

Target Price

Market

MarketEffective Price

Trigger PriceCC pmt

CC pmt

Payments Under the Farm BillMarket Price > Loan Rate


Direct

Direct

Target Price

Loan RateLoan Rate

Effective Price

Trigger Price

Maximum

CC pmtMaximum

CC pmt

Payments Under the Farm BillMarket Price < Loan Rate


• Direct – farmers will receive this every year

• Counter-cyclical –received if the market price + direct is below the target price

• LDP – received if the county price is below the loan rate– Note: There are more opportunities for

receiving a LDP when you are also receiving a counter-cyclical payment than when you are not receiving a counter-cyclical payment

Likelihood of Payment


Payment Schedule Under 2002 Farm Bill


• Cash flow issues• Size of payments• Effect on land values and cash

rents• Risk effects• Does signup affect future planting

decisions?

What Does the New Farm Bill Mean?


• Signup runs until June of 2003• Farm Planning Tool

– Analysis of farm plans with the new farm bill

• Computer decision aids workshop in December

What to do next?


Overall Meat Situation

• Total meat (per capita) near record 220 lbs. Beef +2%, Pork + 2%, Poultry +4%

• Trade – Beef and Pork – little change on a net basis but, Chicken - exports are down 12%

• Demand – seems to holding, in spite of weak economy

• Retail prices all down - Beef 1%, Pork 3%, Chicken 6%

• Expenditures – little change, <2% of income for meat

• Marketing Margins – at historically high levels (60% for beef and 80% for pork)


Meat Consumption (lbs. per person)

0

50

100

150

200

250

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

f USDA -

Forecasts

for 2003

Broilers

80 lbs.

Pork

51 lbs.

Beef

64 lbs.


0.00

10.00

20.00

30.00

40.00

50.00

60.00

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

$/cwt

2001

19982002

Kentucky Hog Prices (live weight basis)


Hog Slaughter – the key to fall prices

• Up 3% to 4% from 2002, but down slightly from 1998’s high per capita levels

• Slaughter plant capacity near 1998’s level

• Hog Inventory (Sept. 1, 2002)Breeding –2% Market +1%Farrowings, Fall -2% Winter -1%

• Prices low through early ’03, recovery in summer


Hog Slaughter Capacity

Head per day

Winter 1998:430,000/day

Sept 2002: 420,000/day


0.00

5.0010.00

15.00

20.0025.00

30.00

35.00

40.0045.00

50.00

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

$/cwt

with late 2002 and 2003 forecasts

2002 actual

forecasts

2003 forecasts

(high/low)

Kentucky Hog Prices(live weight basis)


Futures Prices – Lean Hogs contract

$40 carcass = $30 live wt.


Lean Hogs – Futures Prices

Oct. 2, 2002 Closing Price

Oct 02Dec 02Feb 03Apr 03May 03Jun 03Jul 03

$42.3040.7047.5252.7560.5562.8060.82


0

20000

40000

60000

80000

70 80 90 01

1,000 head

0

400

800

1200

1600

U.S. Ky

Hog Inventory—Kentucky and U.S.


Key Issues for the Swine Enterprise

• Short Term– Feed & environmental costs, – Price/income variability– market access

• Source verification• Humane Standards• Environmental Stewardship• Industry structure

– Tyson selling 30,000 sows– 35% raised under contract (as of 9/02)– S. American production/ international

competition


0

50

100

150

200

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

lbs. per person

Beef Demand ('97=100)

Beef Consumption

BeefDemand Index and Per Capita

Consumption


Cattle on Feed

On Feed: -7%

Marketings : n.c.

Placements: n.c.


F. I. Cattle SlaughterDaily Average, By Month

• ’02 Production +3 %

• ‘03 Production -2 to –5%


Slaughter Cattle Futures – Dec. ‘02

Contract Closing Price

Oct 02 $67.00

Dec 02 $69.65

Feb 03 $71.57

Apr 03 $71.82

Jun 03 $67.40

Aug 03 $67.70

Oct 03 $68.80


July 1 Feeder Cattle SuppliesResidual, Outside Feedlots, U.S.

Supply increases are very unlikely for 2-4 years


Feeder Cattle Demand Factors

• Corn Price– 7:1 impact on yearling prices– $.50 to $.75/bu. Increase in corn prices

• Expected slaughter cattle prices– Futures up for next summer– Expected declines in beef production


Kentucky Feeder Cattle500-600 lbs.

40

60

80

100

120

Jan

Mar

May

Ju

lSep Nov

$/cwt.

2000

20012002

•Fall prices - little change (like 2000)

•2003 prices – up $2 to $5/cwt


Feeder Cattle Futures Prices

As of 10/2/02

Contract Closing Price

Oct 02$79.50

Nov 02 $79.20

Jan 03 $78.05

Mar 03 $76.02

Apr 03$75.90

May 03 $76.05

Aug 03 $77.90

Sep 03 $77.70


Feeder Cattle Futures – Nov. ‘02


• Expect a buy/sell margin of -$ 9 to - $12/cwt. – (about $5/cwt. better than normal)

• Feed cost/lb. of gain: $.22 - $.25• With $85/cwt. for 400 lb. calf, breakeven

prices are $65 to $70/cwt. for 700 lb. Steer

• Returns over var. costs of $60 to $70/hd.

Backgrounding Update


• Slaughter cattle prices expected to rise– Futures trading – April $71, June $67

• Feed costs stable through early summer

• Seasonal decline in calf prices• Breakeven in $68 - $72• Bottom Line – little expected gain

Retained Ownership Outlook


Long Run Outlook

• Expansion has stalled, “cycle” is on hold 3 to 5 years without supply pressure on

prices• Consider the “constant heifer value”

guideline• Risk factors are:

–Economy –Trade–Health issues –Feed costs


Calf Prices and Cattle Inventory


Beef Cow SlaughterFederally Inspected, Monthly


Five State Beef Initiative - Update

• Indiana, Ohio, Michigan, Illinois and Kentucky

• Through September, ’04• E. Cornbelt beef supply chain initiative• Req. include: source verification,

certification


• Receive 50% Cost Sharing on EID’s and carcass data collection through 2003

• Receive detailed performance and carcass data that can be benchmarked with other producers

• Learn where your cattle fit in the marketplace

• Be part of a progressive, multi-state, source verified beef cattle alliance

Produce Benefits of the FSBI


• Source verify - Use electronic ID tags (EID’S)• Health - manage calves by CPH-45 guidelines• Market calves trackable lots (ie: load lots, CHP sales, etc.)• Basic cow/calf production records

(SPA/CHAPS)• FSBI producer certification training• Genetics, environmental and humane

standards

Requirements of the FSBI


2001-2300 calves from 142 different producers-Carcass data returned on over 17002002-5400 calves from 195 different producers-Carcass data is still being returned

Update on Participation


• Kentucky feeders calves perform better than expected in the feedlot and on the rail

• Uniformity still needs to be improved• Carcass data is not only useful to

individual producers, it can be a marketing tool for county / multi-county groups

• Cooperation can exist within the current beef marketing system

What have we learned thus far?


Integrated Resource Management


Beef IRM Programs

Beef Quality Assurance

• First step of producer education

• Over 5,600 Producers Certified

• If you need a list of BQA Certifications in your county, contact KCA at (859) 278-0899


Master Cattleman• Second step of producer

education• Divided into 10 four hour

sessions and an optional 11th “hands-on” session

• In 2002, 12 regions participated, graduating 420 “Master Cattleman”

• Regions are multi-county• If interested, Contact Alison

Smith at (859) 278-0899.

Beef IRM Programs


Beef IRM Programs

Cow College• Top level of education offered to

producers• Five sessions• Over half of Cow College is “hands-on”• Cost: $250• Class size limited to 30 participants• Registrations are already being accepted

for 2003


CPH 45

Kentucky’s Premium Feeder Calf Management Program

• 40 Sales Scheduled• Expecting 50,000 Calves in the

Program• For a list of sale dates, locations, and

vaccine information visit: http://www.uky.edu/Projects/BeefIRM/


2001-2002Range of Premium: -$5.00 to $17.00/cwt

Average Premium: $6.00 to $8.00/cwt

CPH 45 Price Advantage


Why? -$5.00/cwt

All 4 Groups Were: • 4 weights

• Light Condition• Lower Quality

*Don’t Bring These to the CPH-45 Sale*

CPH 45 The Message to Producers


CHAPS• Production record-keeping system• Over 300 producers on the program• Cost to purchase the software $25.00• Custom processing available: $0.50/head/year• Records processed at the county office are

free• 2002 Benchmark data will be available in

January

Beef IRM Record Programs


Beef IRM Record Programs

SPA• Financial record keeping program• Measures: Cow/Calf Enterprise,

Harvested Forages Enterprise, and Pasture Enterprise

• Free Service• Producers complete a workbook and

return it to IRM for processing• 2001 5-States Regional Summary is

currently available


WINNERS (+%)• Leafy Let. (132%)• Peppers (49%)• Cucumbers (36%)• Strawberries (25%)• Carrots (23%)• Cantaloupe (22%)• Tomatoes (16%)• Snap beans (15%)

LOSERS (-%)• Cauliflower (20%)• Head Let. (15%)• Apples (9%)• Celery (8%)• Sw Potatoes. (6%)• Fresh F&V’s PCC

up 10% 1990-02.

Changes in U.S. per capita consumption for selected fruits and

vegetables, 1991-2002


U.S. Sweet Corn Shipping Point U.S. Sweet Corn Shipping Point PricesPrices

1997-2001 and 20021997-2001 and 2002

$0.00

$5.00

$10.00

$15.00

$20.00

$25.00

J une J uly August SeasonAverage

$/cw

t

1997-2001

2002

Source: USDA/ERS


Kentucky Sweet Corn Situation

• Marketing alliances for tray pack continuing

• Expanding to include foodservice products

• Growers struggled in 2001 but did better with 2002 prices


U.S. Tomato f.o.b Shipping Point U.S. Tomato f.o.b Shipping Point PricesPrices

1997-2001 and 20021997-2001 and 2002

$0.00

$5.00

$10.00

$15.00

$20.00

$25.00

$30.00

$35.00


$/cw

t 1997-2001

2002

Source: USDA/ERS


U.S. vs. Canadian Tomato Imports

by: Kevin Nierman, The Packer, 2002


Tomato Imports Continue to Grow

$0

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000

$700,000

$800,000

1990

1992

1994

1996

1998

2000

Other

Netherlands

Mexico

Canada


U.S. Cantaloupe Shipping Point U.S. Cantaloupe Shipping Point PricesPrices

1997-2001 and 20021997-2001 and 2002

$0.00

$4.00

$8.00

$12.00

$16.00

$20.00


$/cw

t 1997-2001

2002

Source: USDA/ERS


U.S. Cabbage Average Farm PriceU.S. Cabbage Average Farm Price1997-20011997-2001

$0.00

$2.00

$4.00

$6.00

$8.00

$10.00

$12.00

$14.00

$16.00

Pri

ce/cw

t

1997 1998 1999 2000 2001

Avg. Farm PriceSource: USDA/ERS


U.S. Bell Pepper Average Farm U.S. Bell Pepper Average Farm PricePrice

1997-20011997-2001

Source: USDA/ERS

$0.00

$5.00

$10.00

$15.00

$20.00

$25.00

$30.00

$35.00

Pri

ce/cw

t

1997 1998 1999 2000 2001

Avg. Farm Price


U.S. Fresh Market Blueberry U.S. Fresh Market Blueberry ProductionProduction

• Southern region production increases by 9% in 2002 BUT

• Southern market share decreases from 23% in 2001 due to increases in Western production

Source: North American Blueberry Council

2002

West30%

Midwest19%

Northeast30%

Southern21%

West Midwest Northeast Southern


2002 Blueberry Production2002 Blueberry ProductionKentucky and Other StatesKentucky and Other States

Kentucky production (40 acres) equaled approximately 50,000 pounds in 2002, up from 37,000 in 1997. Production is expected to increase to 350,000 pounds (40 more acres) by 2004. (UKy, USDA)

02468

101214161820

AL AR GA KY NC OK, SC,TN

MI IN MN, MO,OH, WI

Mill

ion

Po

un

ds


Atlanta Terminal Market Atlanta Terminal Market Blackberry PricesBlackberry Prices

$0.00

$5.00

$10.00

$15.00

$20.00

$25.00

$30.00

1-Ju

n8-

Jun

15-J

un

22-J

un

29-J

un6-

Jul

13-J

ul

20-J

ul

27-J

ul

3-Aug

10-A

ug

17-A

ug

24-A

ug

Per

Do

zen

6

oz

or

1/2

pt.

co

nta

ine

rs

1999-2001

2002

Source: USDA/ERS


U.S. Grape Vines, 1987-2002U.S. Grape Vines, 1987-2002

Sources: 1987-97: US Ag Census 2002: USDA/ERS, wineinstitute.org, CA Dept. of Food and Agriculture.

*2002 estimate includes 1,179,545 acres.

0

100,000,000

200,000,000

300,000,000

400,000,000

500,000,000

600,000,000

700,000,000

1987 1992 1997 2002*

Bearing Vines

Nonbearing Vines


Approximate Grape Prices Paid By Approximate Grape Prices Paid By Regional Wineries, 1997-2000Regional Wineries, 1997-2000

$/ton$/ton Vidal Seyval Vignoles Chambourcin Foch Concord

IN 525-550 400-550 475-685 450-600 400-550

MI 400-600 475-600 650-700 575-750

MO 600-700 600-700 600-700 325-375

NY 450-580 400-575 450-650 800-900 500-650 275-315

OH 450-610 450-675 190-230

PA 600-700 550-600 700-750 700-1000 550-600 200-500

VA 500-700 500-700 500-700 600-750 500-700

Estimated KY Breakeven Price Per Ton: $650-1050

Source: “Business Planning and Economics of Midwestern Grape Production”Bruce Bordelon, Purdue University, http://viticulture.hort.iastate.edu/wsfeb01/business.html


• Early indication is that Fall 2002 prices are slightly higher than usual.

• Good yields

Pumpkin Situation


St. Louis Terminal Market PricesSt. Louis Terminal Market PricesIllinois Large Howden PumpkinsIllinois Large Howden Pumpkins

$0

$20

$40

$60

$80

$100

$120

$140

30-Sep

1-Oct 2-Oct 3-Oct 4-Oct

45-5

0 C

oun

t B

ins

2001 2002

•Production problems (disease) have resulted in lower yields and significantly higher pumpkin prices early in the 2002 season.


Kentucky Agricultural Kentucky Agricultural Diversification Funds by CountyDiversification Funds by County

•$0-100,000

•$100,000-$199.999

•$200,000+ (Yellow counties)


Value of KY Wholesale Floriculture Value of KY Wholesale Floriculture Sales By Grower Size, 1993-2001Sales By Grower Size, 1993-2001

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

$40,000

Whole

sale

Sale

s ($

1,0

00)

$100,000+

$10,000-$99,999

<$10,000

Source: USDA/ERS Floriculture and Nursery Crops Situation and Outlook Yearbook, May 2002


40

50

60

70

80

90

100

76 78 80 82 84 86 88 90 92 94 96 98 00 02

Million Acres

U.S. Corn Acres Planted U.S. Corn Acres Harvested

U.S. Corn Acres


0

20

40

60

80

100

120

140

160

75 77 79 81 83 85 87 89 91 93 95 97 99 01

Bushels/Acre

ACTUAL TREND

U.S. Corn Yield


0

2

4

6

8

10

12

79 81 83 85 87 89 91 93 95 97 99 01

BILLION BU

FEED EXPORTS F,S,I TOTAL USE

U.S. Corn Use


Corn Balance Sheet


U.S. Corn Stocks & Prices


0.000

10.000

20.000

30.000

40.000

50.000

60.000

70.000

80.000

75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02

Mil

lio

n A

cres

0

500

1000

1500

2000

2500

3000

3500

Mil

lio

n B

u

Harvested Acres Production

U.S. Soybean Acres and Production


Soybean Use


0.0010.00

20.0030.00

40.0050.00

60.0070.00

80.0090.00

77 79 81 83 85 87 89 91 93 95 97 99 01

Mil

lio

n M

etri

c T

on

s

Brazil Argentina Total

Brazil and Argentina Soybean Production


Soybean Balance Sheet


0

100

200

300

400

500

600

79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02

Mil

lio

n B

u

0

1

2

3

4

5

6

7

8

9

$/B

u

Soybean Stocks Soybean Prices

Soybean Stocks and Prices


0

10

20

30

40

50

60

70

80

90

100

74 76 78 80 82 84 86 88 90 92 94 96 98 00 02

MIL

LIO

N A

CR

ES

PLANTED ACRES HARVESTED ACRES

U.S. Wheat Acres


Wheat Use


Wheat Balance Sheet


1. Limited “Carry” in the Market 2. U.S. & Global Stocks of Grains & Soybeans

are Low3. South America is Assumed to Produce

Another Record Soybean Crop4. China: Import/Exports5. Prices are “High” Compared to Recent Years6. Government Loan Rates

Marketing Decisions


1. Buy Puts & “Roll” to Higher Strike Prices, if –when, market rallies. Need to make some cash sales quickly when market falters.

2. Synthetic Put – short the board & buy calls. Still have to price the grain – need some targets.

3. Price grain & buy Calls – need targets at which to offset calls.

4. LDP’s not likely on corn – possible on soybeans5. Consider purchase of “out-of-the-money” calls on

soybeans to protect possible LDP &/or CCP.

Strategies to Consider


1. Limited “Carry” in the Market 2. U.S. & Global Stocks of Grains & Soybeans

are Low3. South America is Assumed to Produce

Another Record Soybean Crop4. China: Import/Exports5. Prices are “High” Compared to Recent Years6. Government Loan Rates

Marketing Decisions


1. Buy Puts & “Roll” to Higher Strike Prices, if –when, market rallies. Need to make some cash sales quickly when market falters.

2. Synthetic Put – short the board & buy calls. Still have to price the grain – need some targets.

3. Price grain & buy Calls – need targets at which to offset calls.

4. LDP’s not likely on corn – possible on soybeans5. Consider purchase of “out-of-the-money” calls on

soybeans to protect possible LDP &/or CCP.

Strategies to Consider


I. Number of Cooperatives

Type 1990 1999 Change

Marketing 2,519 1,749 -770

Farm Supply 1,717 1,313 -404

Service 427 404 -23

Total 4,663 3,466 -1,197

II. Cooperative Memberships

Marketing 1,882 1,283 -599

Farm Supply 2,006 1,731 -275

Service 232 159 -73

Total 4,120 3,173 -947

Farmer Cooperatives: National Trends


Category PercentFarm SupplyGrain and OilseedServiceDairyLivestock and PoultryFruits and VegetablesCottonOther MarketingTOTAL

37.925.811.66.42.86.70.48.4

100.0

III. Distribution of Farmer Co-ops by Type 1999

Other marketing include dry beans and peas, wool, mohair, nuts, rice, sugar, fishery and other miscellaneous marketing cooperatives.


Farmer Cooperatives: National Trends

IV. Reasons for Decline in Coop Numbers

Reason Percent

Dissolved 44.6

Mergers/Consolidations 32.2

Acquired by Other Coops

13.9

Other Reasons 9.3

Total 100.0

*From 1990 to 1999, about 1,861 co-ops were removed from RBS list of Farmer Cooperatives


V. Reasons for Declining Memberships1. Cooperative memberships dropped from 4.1 million in

1990 to 3.1 million in 1999. Reasons for this decline include: Decreasing number of farms and farmers in the U.S. Most farmers belong to more than one co-op and each

membership is counted. Retirements lead to double decline counts.

Problems in data collection.

VI. Other Important National Trends (1998-99) Total gross business volume handled by co-ops

dropped 4.7% from $121 billion to $115.3 billion. Total net income of $1.3 billion was down 23.8% from

$1.7 billion in 1998. The number of part-time and seasonal employees

employed by co-ops increased.


I. KCCD—MissionII. KCCD Personnel in Place

A. Executive DirectorB. Cooperative Development SpecialistC. Office Manager

III. KCCD Center StructureA. Board of DirectorsB. Executive DirectorC. Development SpecialistsD. Office Manager

Cooperative Development in Kentucky


IV. KCCD FundingA. USDAB. Kentucky Tobacco Settlement BoardC. KDAD. UK College of Agriculture

V. KCCD Development ActivitiesA. Feasibility StudiesB. Business PlansC. Management AuditsD. Director TrainingE. Managed TrainingF. Drafting Legal Documents


The Management Audit

Objective Identify problems and opportunities for improving the

business Make recommendations for solving existing problems Recommend procedures for exploiting existing and

potential opportunities that will result in more efficient and profitable operations.

Identify opportunities to provide educational and technical assistance to the Board and Management.


1. Select an Agribusiness that will benefit from Audit.2. Collect relevant operating and marketing data and

industry standards prior to the Audit.3. Review business plans, policies, financial statements, and

relevant firm documents.4. Observe and analyze all physical operations and conduct

a time and motion study.5. Interview board, manager(s), employees and selected

farmers to ascertain and evaluate goals, plans, organization structure, guidance and direction in the firm, coordination of business and operations activities, and communications within the firm.

6. Analyze financial data and the control system in the firm.

Audit Procedure


7. Process data from the time management study information from the interviews, financial statements, and relevant documents.

8. Compare firm performance with industry standards.9. Identify problems and opportunities and make specific

recommendations for improving or solving each entity.

10. Make preliminary oral report to the board immediately after the audit.

11. Write final report and submit to board and manager.

Audit Procedure (continued)


IV. The Alliance of Produce Growers-Shippers

Overall Purpose To support a unified network of produce shipping point

facilities that will reduce the cost of imports while maximizing profits from products marketed.

CORE Activities1. Purchase supplied together for cost savings2. Conduct joint promotions of alliance members

produce.3. Develop fresh and processed markets for alliance

members to cooperatively supply.4. Transition the Alliance into an independent, self-

funded industry marketing and promotion organization.


Relationship With KCCD The Alliance Director will work closely with KDA

Produce Marketing Specialist to design and carry out: Special Promotions Trade Show Displays Point of Purchase Materials, and Create an Alliance website featuring member

produce and facilities

The Alliance Director will report to the Executive Director of

5. KCCD who in turn shall report to KDA on progress made.


VII. Future Challenges for cooperatives served by KCCD:A. Equity InvestmentsB. FinancingC. Product QualityD. Member LoyaltyE. Quality ManagementF. Strong Boards of DirectorsG. Hiring and Retaining Good ManagersH. Legal Issues


This presentation was presented with the Agricultural Situation and Outlook, Fall 2002, publicationnumber ESM-28, published by the Department of Agricultural Economics at the University of Kentucky with an additional contribution from Kentucky State University in October 2002. The entire publication can be accessed on the WWW at http://www.uky.edu/Ag/AgEcon/publications/esm_28.pdf. This article presents information on the economic situation and outlook for Kentucky agriculture and is intended to assist farmers, agribusiness professionals, Extension filed staff, and others with interest in agriculture and agribusiness. Information presented here is based on the most recent information and research available. However, the rapidly changing economic and policy conditions for agriculture limit the usefulness and life span of conclusions and recommendations cited here. Decision makers should keep these facts in mind. Feel free to use the information included in this publication for other uses, but please provide professional citation about the source. This paper is published without formal review and the views expressed are those of the authors and do not necessarily reflect the views of the Universityof Kentucky, the Agricultural Experiment Station, or the Cooperative Extension Service. If you need additional information or if you would like to provide comments or suggestions about this slideshow, please contact Gregg Ibendahl at [email protected] or Larry Jones at [email protected].

The end!

University of Kentucky, Department of Agricultural Economics400 Charles E. Barnhart Bldg., Lexington, KY 40546-0276

Phone: 859-257-5762, Fax: 859-323-1913URL: http://www.uky.edu/Ag/AgEcon/

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